oversight

The Pell City Housing Authority, Pell City, AL, Did Not Always Administer Its and the Ragland Housing Authority, Ragland, AL's Funds in Accordance With HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-07-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

         Pell City and Ragland Housing
                    Authorities,
         Pell City, AL, and Ragland, AL
                            Public Housing Program




Office of Audit, Region 4                Audit Report Number: 2018-AT-1009
Atlanta, GA                                                    July 23, 2018
To:            Velma Byron, Director, Office of Public and Indian Housing, 4CPH

                  //Signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, 4AGA
Subject:       The Pell City Housing Authority, Pell City, AL, Did Not Always Administer Its
               and the Ragland Housing Authority, Ragland, AL’s Funds in Accordance With
               HUD Requirements




Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of the Pell City and Ragland Housing Authorities’
housing programs.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG website. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
404-331-3369.
                    Audit Report Number: 2018-AT-1009
                    Date: July 23, 2018

                    The Pell City Housing Authority, Pell City, AL, Did Not Always Administer
                    Its and the Ragland Housing Authority, Ragland, AL’s Funds in Accordance
                    With HUD Requirements


Highlights

What We Audited and Why
We audited the Pell City and Ragland Housing Authorities’ financial operations. We began our
review of Pell City and Ragland because it aligns with a goal in our annual audit plan to improve
the U.S. Department of Housing and Urban Development’s (HUD) execution of and
accountability for grant funds. Our audit objective was to determine whether the Pell City
Housing Authority complied with HUD’s regulations regarding the management of its financial
operations and its management of the Ragland Housing Authority.

What We Found
The Pell City Housing Authority failed to follow Federal requirements and its policies governing
program execution for both Pell City and Ragland. Specifically, Pell City did not (1) always
administer its and Ragland’s funds in accordance with Federal requirements and its policies and
procedures, (2) comply with conflict-of-interest requirements, and (3) always comply with its
and Ragland’s housing requirements. This condition occurred because the Authorities lacked
adequate controls and their boards of commissioners lacked the appropriate knowledge of
Federal requirements and the Authorities’ guidelines to ensure adequate oversight. As a result,
the Authorities spent more than $1,000 for unallowable costs and disbursed more than $44,000
that was not properly supported.

What We Recommend
We recommend that the Director of HUD’s Birmingham Office of Public and Indian Housing
require the Pell City Housing Authority to (1) repay from non-Federal funds the $1,188 for
payments made for unallowable costs, (2) provide documentation for costs or repay more than
$12,000 from non-Federal funds, (3) comply with conflict-of-interest requirements, and (4)
implement adequate procedures and controls to ensure that waiting list applicants are selected in
accordance with HUD requirements. We also recommend that the Ragland Housing Authority
(1) repay from non-Federal funds the $105 in payments made for unallowable costs, (2) provide
documentation for costs or repay more than $31,000, and (3) implement adequate procedures and
controls to ensure that waiting list applicants are selected in accordance with HUD requirements.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Pell City Housing Authority Did Not Administer Its and Ragland’s
         Financial Operations in Accordance With HUD Regulations ...................................... 4
         Finding 2: The Pell City Housing Authority Did Not Comply With Conflict-of-
         Interest Requirements ...................................................................................................... 9
         Finding 3: The Pell City and Ragland Housing Authorities Did Not Always
         Administer Their Waiting Lists in Accordance With HUD Requirements............... 11

Scope and Methodology .........................................................................................13

Internal Controls ....................................................................................................15

Appendixes ..............................................................................................................16
         A. Schedule of Questioned Costs .................................................................................. 16

         B. Auditee Comments and OIG’s Evaluation ............................................................. 17




                                                                  2
Background and Objective
The Pell City Housing Authority was established on August 8, 1951, in accordance with State
and Federal laws. It administers 78 low-rent public housing units in Pell City, AL. Its mission is
to provide decent, safe, sanitary, and affordable housing and related services to the qualified
citizens of Pell City. The Pell City Housing Authority is governed by a five member board of
commissioners appointed by the mayor and an executive director. The board of commissioners
hires the executive director to manage the daily operations of the Authority. Pell City has four
full-time employees, including its executive director.
The Ragland Housing Authority was established on December 19, 1951, in accordance with
State and Federal laws. Its mission is to provide decent, safe, sanitary, and affordable housing
and related services to the qualified citizens of Ragland, AL. The Ragland Housing Authority
administers 60 low-rent public housing units in Ragland, AL. Ragland is governed by its own
five-member board of commissioners appointed by the mayor. The Pell City Housing Authority
is the management agent for the Ragland Housing Authority. 1 Pell City’s executive director is
responsible for the administration of Ragland’s daily housing operations. Ragland’s
maintenance supervisor and property manager are its only employees.
Pell City and Ragland are governed by the provisions of a consolidated annual contributions
contract between them and the U.S. Department of Housing and Urban Development (HUD).
Pell City and Ragland each receive Public Housing Operating Fund subsidies for the operation
and maintenance of low-income housing projects. Also, HUD awards funds from its Public
Housing Capital Fund program annually to Pell City and Ragland to provide financial assistance
to carry out capital and management activities, including development, financing, and
modernization.
HUD awarded Pell City more than $1.12 million in operating funds for fiscal years 2013 to 2017
and more than $578,000 in capital funds for years 2012 to 2017. HUD awarded Ragland more
than $1.13 million in operating funds for fiscal years 2013 to 2017 and more than $410,000 in
capital funds for fiscal years 2012 to 2017. HUD’s Alabama Office of Public Housing in
Birmingham, AL, is responsible for overseeing the Authorities.
Our audit objective was to determine whether the Pell City Housing Authority complied with
HUD’s regulations regarding the management of its financial operations and its management of
the Ragland Housing Authority.




1
    The Pell City Housing Authority entered into a management agreement with the Ragland Housing Authority on
    May 14, 2012.
                                                       3
Results of Audit

Finding 1: The Pell City Housing Authority Did Not Administer Its
and Ragland’s Financial Operations in Accordance With HUD
Regulations
Pell City did not always administer its and Ragland’s financial operations in accordance with
HUD regulations. Specifically, Pell City’s credit card was inappropriately used for more than
$5,800 in unallowable and inadequately supported purchases. In addition, Ragland’s credit card
was inappropriately used for more than $1,400 in unallowable and inadequately supported
purchases. Ragland failed to support program expenses of $11,887. Further, Pell City and
Ragland did not provide adequate documentation to support $8,165 and $18,373, respectively, in
Federal funds spent for hired laborers. These conditions occurred because the executive director
did not follow Federal regulations and the Authorities’ policies and Pell City’s and Ragland’s
boards of commissioners did not provide adequate oversight. As a result, HUD lacked assurance
that the Authorities’ housing programs operated in accordance with program requirements.
Pell City Credit Card Expenditures Were Not Eligible or Adequately Supported
Pell City paid more than $1,100 for unallowable expenditures and more than $4,700 in costs that
lacked adequate documentation. Credit card payments were made for unallowable expenditures,
such as late fees, gift cards, alcoholic beverages, and gas purchased by the maintenance director
while on vacation. Pell City also purchased miscellaneous items, such as food and supplies,
which lacked an itemized receipt. Regulations at 2 CFR (Code of Federal Regulations) Part 225,
establishes the basic guidelines, principles, and standards, for allowable costs, and 2 CFR
200.403(a) and (g) also provides the same guidance. Both regulations provide that allowable
costs must be adequately documented, necessary, and reasonable for the proper and efficient
performance and administration of Federal awards. Additionally, regulations at 24 CFR
85.20(b)(5) and 85.20(b)(6) provide guidance on the requirements that must be followed in
determining the reasonableness, allowability, and allocability of costs and state that accounting
records must be supported by source documentation.

The September 21, 2015, 2 credit card use policy required the appropriate official to review the
credit card statement and supporting documentation within 5 days of receipt of the statement.
Pell City’s September 21, 2015, board minutes showed that the responsibility for the monthly
credit card review was assigned to a member of the board. However, Pell City’s executive
director approved all credit card purchases for herself and the Pell City staff. In addition, Pell
City’s board disregarded the policy and did not always perform its duty to review the credit card
statements. The board reviewed only 15 of 26 3 credit card statements received after the credit
card use policy was implemented. Of the 15 statements the board reviewed, Pell City’s


2
    Before September 21, 2015, Pell City did not have a credit card policy.
3
    See the Scope and Methodology section of this report for details of the projection methodology.
                                                          4
executive director disregarded the Authority’s policies and paid 13 of 15 4 credit card statements
before the board’s review and approval.

As a result, HUD lacked assurance that Pell City appropriately used Federal funds for allowable
and supported costs. The table below summarizes Pell City’s unallowable costs and
inadequately supported expenses.

                                   Total                                                   Total
                                                   Unallowable
              Fiscal year        purchases                           Unsupported         questioned
                                                      costs
                                 reviewed                                                  costs
                  2013            $9,770               $638             $1,201            $1,839
                  2014            11,446                311              1,042             1,353
                  2015            12,958                139                833               972
                  2016            13,565                100              1,040             1,140
                  2017            12,078                  0                593               593
                 Total             59,817              1,188              4,709             5,897


Ragland’s Credit Card Expenditures Were Not Eligible or Adequately Supported
Ragland paid $105 for unallowable credit card purchases, such as gas and gifts, and spent more
than $1,300 in Federal funds for items not adequately supported with receipts in accordance with
24 CFR 85.20(b)(5), 24 CFR 85.20(b)(6), 2 CFR Part 225, and 2 CFR 200.403.

Although Ragland began using the credit card for purchases in September 2013, its board of
commissioners was unaware of the credit card or its use by Ragland’s staff. Therefore, the board
did not review the credit card purchases. Ragland did not have a credit card policy, although Pell
City established a credit card use policy on September 21, 2015. Ragland’s board did not review
or approve the policy.

Pell City’s executive director, as the management agent for Ragland, approved all credit card
purchases for herself and Ragland’s staff without the board’s review. As a result, HUD lacked
assurance that Pell City appropriately managed Ragland’s financial operations, thereby ensuring
that Federal funds were used for allowable and supported costs. The table below summarizes
Ragland’s unallowable and inadequately supported expenses.




4
    See the Scope and Methodology section of this report for details of the projection methodology.
                                                          5
                                   Total                                                   Total
                                                   Unallowable
              Fiscal year        purchases                           Unsupported         questioned
                                                      costs
                                 reviewed                                                  costs
                  2013                $0                 $0                  $0               $0
                  2014             3,472                  0                 545              545
                  2015             3,529                105                 147              252
                  2016             6,208                  0                   0                 0
                  2017             3,500                  0                 628              628
                 Total             16,709               105               1,320             1,425


Ragland’s Program Expenditures Were Not Adequately Supported
We reviewed 20 disbursements totaling more than $214,000 to determine whether the purchases
were allowable and adequately supported. Ragland lacked supporting documentation for 3 of the
20 sampled disbursements 5 totaling $11,887 for contract payments and supplies. Ragland did
not provide sufficient support for all of its disbursements, as required by 24 CFR 85.20(b)(6). In
addition, regulations at 2 CFR Part 225 and 2 CFR 200.403 (a) and (g) provide that allowable
costs must be necessary, reasonable, and adequately documented.

Ragland also did not comply with its own purchase review and check writing policy. The policy
required that the executive director and board chairman review and sign all checks before
purchase to ensure that the costs complied with HUD’s requirements. We identified 15 of 20 6
sampled disbursements that were signed by the executive director and a member of the board
other than the board chairman as required. Ragland’s staff and its board disregarded Federal
regulations and its own policies and failed to ensure that its policies and procedures were fully
implemented. As a result, HUD lacked assurance that Pell City appropriately managed
Ragland’s financial operations to ensure that Federal funds of $11,887 were used for adequately
supported costs.
Hired Laborers Were Improperly Paid for Work at Pell City and Ragland
Pell City and Ragland did not provide adequate documentation to support more than $26,538
paid for work by hired laborers. Specifically, Pell City did not provide adequate documentation
to support $8,165 paid for work performed by hired laborers. Pell City officials stated that they
paid five individuals for assistance with the preparation of vacant units for occupancy and other
maintenance work. However, Ragland did not provide adequate documentation to support
$18,373 paid for work performed by five of its tenants. Ragland officials stated that they paid
the tenants for assistance in preparing vacant units for occupancy and other maintenance work.


Regulations at 2 CFR Part 225 and 2 CFR 200.403 (a) and (g) provide that allowable costs must
be necessary, reasonable, and adequately documented. Section 3 of the Housing and Urban


5
    See the Scope and Methodology section of this report for details of the projection methodology.
6
    See the Scope and Methodology section of this report for details of the projection methodology.
                                                          6
Development Act of 1968 7 allow the hiring of public housing residents and low- and very low-
income persons for temporary employment, but the costs must be necessary, reasonable, and
adequately documented. Pell City and Ragland paid the workers to assist with the
responsibilities of the maintenance supervisors. However, the documentation provided failed to
adequately support in detail the services provided by the workers, the location of the work
performed, or the justification for payment. As a result, Pell City and Ragland paid $26,538 in
Federal funds for unsupported disbursements, and HUD lacked assurance that Pell City
appropriately managed its and Ragland’s financial operations.
Conclusion
Pell City’s executive director and Ragland’s staff, as well as the board of commissioners for each
Authority, disregarded Federal regulations and their own policies and failed to ensure that their
policies and procedures were fully implemented. As a result, HUD paid more than $45,700 in
Federal funds for unallowable costs and inadequately supported disbursements and lacked
assurance that the Authorities’ housing programs operated in accordance with program
requirements.

Recommendations
We recommend that the Director of HUD’s Birmingham, AL, Office of Public and Indian
Housing require
         1A. The Pell City Housing Authority to reimburse its public housing fund from non-
             Federal funds $1,188 for payments made for ineligible credit card expenditures.
         1B. The Pell City Housing Authority to support or reimburse its public housing fund
             $12,874 ($4,709 + $8,165) for unsupported disbursements.
         1C. The Pell City Housing Authority to fully implement adequate internal controls over
             its credit card purchases and disbursements to ensure that it complies with Federal
             requirements and its own policies and procedures.
         1D. The Pell City Housing Authority to revise its policies and procedures for its review
             of expenditures to ensure that its board of commissioners documents its
             enforcement of and the Authority’s compliance with the requirements during its
             review process to ensure that the Authority’s disbursements are supported and used
             for eligible expenditures.
         1E. The Pell City Housing Authority’s board of commissioners to receive training to
             ensure the proper review and approval of expenditures and to understand the
             requirements relevant to the Authority’s financial operations.




7
    Section 3 of the HUD Act of 1968 states that whenever HUD financial assistance is spent for housing or
    community development, to the greatest extent feasible, economic opportunities will be given to Section 3
    residents, specifically, public housing residents and low- and very low-income persons, and businesses in that
    area.
                                                          7
1F. The Ragland Housing Authority to reimburse its public housing fund from non-
    Federal funds $105 for credit card payments made for ineligible expenditures.
1G. The Ragland Housing Authority to support or reimburse its public housing fund
    $31,580 ($1,320 +$11,887 + $18,373) for unsupported disbursements.
1H. The Ragland Housing Authority to develop and implement adequate internal
    controls over its credit card purchases and disbursements to ensure that it complies
    with Federal requirements and its own policies and procedures.
1I.   The Ragland Housing Authority to develop and implement its own policies and
      procedures for its review of expenditures to ensure that its board of commissioners
      documents its enforcement of and the Authority’s compliance with the requirements
      during its review process to ensure that the Authority’s disbursements are supported
      and used for eligible expenditures.
1J.   The Ragland Housing Authority’s board of commissioners to receive training to
      ensure the proper review and approval of expenditures and to understand the
      requirements relevant to the Authority’s financial operations.




                                         8
Finding 2: The Pell City Housing Authority Did Not Comply With
Conflict-of-Interest Requirements
Pell City failed to comply with conflict-of-interest requirements when it allowed its executive
director to directly supervise her spouse and approve his timesheets and credit card purchases.
This condition occurred because the Authority’s board of commissioners disregarded Federal,
State, and its own regulations regarding conflicts of interest. As a result, HUD lacked assurance
that housing program funds were spent in accordance with program requirements.

There Was an Apparent Conflict of Interest
Pell City’s executive director and its maintenance supervisor were married, and the executive
director was the direct supervisor of her spouse. She approved his timesheets 8 and credit card
purchases 9 from 2013 to 2017 and had a direct financial interest in his continued employment
and earnings. Pell City’s board of commissioners entered into an employment contract with the
executive director in March 2009, although her husband was already employed with the
Authority as its maintenance supervisor.

Regulations at 2 CFR 200.303(a) require that effective internal controls over Federal awards be
established and maintained and that management evaluate delegation for the proper segregation
of duties. Also, 24 CFR 982.161(a)(2) prohibits any employee of a public housing agency who
formulates or influences policy decisions from entering into a contract or arrangement in which
the employee has a direct financial interest during his or her tenure or for 1 year thereafter.
Accordingly, the board could have designated another position the responsibility for the
approving the executive director’s husband’s timesheets and purchases.

Pell City’s annual contribution contract 10 with HUD also prohibited the conflict-of-interest
relationship and provided guidance for obtaining a waiver of the requirements by HUD or the
Authority’s board of commissioners. The State of Alabama Code 11 further prohibits public
employees from engaging in actions or inaction that would materially affect their financial
interest or that of their family members. The executive director and the board chairman stated
that HUD was aware of the marital relationship, and the board chairman asserted that the board
had issued a waiver. However, Pell City could not provide a waiver from HUD or its board of


8
     The maintenance supervisor was a salaried employee and submitted his timesheets as required. We did not
     identify any issues.
9
     We reviewed 100 percent of the maintenance supervisor’s credit card purchases and identified the questioned
     expenditures in finding 1.
10
     ACC Part A, Chapter 9, Section 19(B)(1) of HUD’s annual contributions contract defines a conflict of interest as
     a financial interest that may arise between the Authority’s employees and their immediate family members. The
     annual contributions contract, part A, chapter 9, section 19(B), prohibits this type of relationship, but HUD and
     the Authority’s board of commissioners may waive the requirement. Further, the annual contributions contract,
     part A, chapter 9, section 19(B)(4), states that the Authority’s board of commissioners may waive the
     requirements for good cause, as permitted by State and local law.
11
     The State of Alabama Code 36-25-1 defines a conflict of interest as any action, inaction, or decision by a public
     official or public employee in the discharge of his or her official duties, which would materially affect his or her
     financial interest or that of his or her family members or any business with which the person is associated in a
     manner different from the manner in which it affects the other members of the class to which he or she belongs.
                                                             9
commissioners. In addition, HUD’s official files did not contain a written waiver of the conflict
as required.

Conclusion
Pell City’s board of commissioners disregarded Federal, State, and its own regulations regarding
conflicts of interest. As a result, HUD lacked assurance that housing program funds were spent
in accordance with program requirements.
Recommendations
We recommend that the Director of HUD’s Birmingham, AL, Office of Public and Indian
Housing require
       2A. The Pell City Housing Authority to comply with conflict-of-interest requirements or
           obtain a waiver from HUD or its board of commissioners.
       2B. The Pell City Housing Authority to develop and implement a policy for the review
           and approval of timesheets and credit card purchases, which ensures a proper
           segregation of duties and is approved by its board of commissioners.




                                                10
Finding 3: The Pell City and Ragland Housing Authorities Did Not
Always Administer Their Waiting Lists in Accordance With HUD
Requirements
Pell City and Ragland did not properly maintain their waiting lists in accordance with HUD
requirements. Specifically, the Authorities did not maintain adequate historical documentation
to show that they selected applicants from their waiting lists in accordance with their own and
HUD’s requirements. These conditions occurred because the Authorities failed to follow the
established waiting list policy. As a result, HUD had no assurance that applicants were properly
selected from the Pell City and Ragland waiting lists.

Pell City Did Not Maintain Adequate Waiting List Documentation
Pell City did not properly maintain its waiting lists. For two of the four 12 tenant files reviewed,
the Authority did not maintain adequate historical documentation to support its selection of
applicants for admission to housing. For example, Pell City’s waiting list showed 33
applications dated before August 16, 2017. However, an applicant applied for a housing unit on
September 5, 2017, and Pell City leased the housing unit to the applicant on December 15, 2017.
Pell City had no documentation or justification to explain why this family was admitted into the
program before the other applicants on the waiting list. Specifically, Pell City did not document
the offers made, the offers rejected, and the date on which the applicant was housed in
accordance with the selection method guidance provided at section VII(B) of its admissions and
continued occupancy policy. 13 Regulations at 24 CFR 960.206(e) also required that the
Authority select applicants in accordance with the method specified in its housing plans and have
a clear audit trail that could be used to verify its compliance with its methodology. As a result of
its noncompliance, Pell City may have bypassed eligible applicants on its waiting list to
accommodate other applicants without adequate documentation.

Ragland Did Not Maintain Adequate Waiting List Documentation
Ragland did not properly maintain its waiting lists because it lacked adequate historical
documentation to support its selection of applicants for admission to housing. For one of two 14
applications reviewed, Ragland did not document the offers made, the offers rejected, and the
date on which the applicant was housed in accordance with 24 CFR 960.206(e). 15 For example,
Ragland’s waiting list showed four applications, dated before August 16, 2017, when Ragland
leased the housing unit to one of four applicants on October 31, 2017. However, the remaining
three applications were dated before those of the selected applicant. Ragland had no
documentation or justification to explain why this family was admitted into the program before



12
     See the Scope and Methodology section of this report for details of the projection methodology.
13
     Section VII(B) of the admissions and continued occupancy policy required that the Authority maintain accurate
     records of (1) eligibility status on its waiting list, (2) position on the waiting list, (3) offers made, (4) offers
     rejected (reason), and (5) date housed.
14
     See the Scope and Methodology section of this report for details of the projection methodology.
15
     Regulations at 24 CFR 960.206(e) require that public housing agencies select applicants in accordance with the
     method specified in the agency’s housing plan and have a clear audit trail that can be used to verify compliance
     with this methodology.
                                                            11
the other applicants on the waiting list. As a result, Ragland may have also bypassed eligible
applicants on its waiting list to accommodate other applicants without adequate documentation.

Conclusion
Pell City and Ragland failed to follow their established waiting list policy. As a result, they may
have bypassed eligible applicants on their waiting lists to accommodate other applicants without
adequate documentation.
Recommendations
We recommend that the Director of HUD’s Birmingham, AL, Office of Public and Indian
Housing require
       3A. The Pell City Housing Authority to fully implement procedures and controls to
           ensure that waiting list applicants are selected in accordance with HUD
           requirements.
       3B. The Ragland Housing Authority to fully implement procedures and controls to
           ensure that waiting list applicants are selected in accordance with HUD
           requirements.




                                                12
Scope and Methodology
We performed our onsite audit work between August 2017 and April 2018 at the Pell City
Housing Authority at 110 32nd Street, Pell City, AL, and the Ragland Housing Authority at 406
8th Street, Ragland, AL. Our audit period was October 1, 2012, through September 30, 2016.
We expanded the audit period to September 30, 2017, to accomplish our objective.

To accomplish our objective, we
     •    Reviewed and obtained an understanding of Pell City’s and Ragland’s annual
          contributions contract and policies and procedures.
     •    Reviewed applicable HUD laws, regulations, and other HUD program requirements
          relevant to operation subsidies and capital funding.
     •    Reviewed Pell City’s and Ragland’s board minutes and organizational charts.
     •    Reviewed Pell City’s and Ragland’s audited financial statements.
     •    Reviewed Pell City’s and Ragland’s financial records, including but not limited to
          disbursement documents, credit card statements, and vendor invoices.
     •    Interviewed Pell City’s and Ragland’s employees, board chairman, fee accountants, and
          HUD staff.
Findings 1 and 2
We reviewed the credit card purchases for Pell City and Ragland to determine whether the
purchases were properly supported and eligible. We reviewed 100 percent of Pell City’s credit
card purchases from October 1, 2012, to September 30, 2017, totaling more than $59,000. We
also reviewed 100 percent of Pell City’s 26 16 credit card statements from August 2015 17 to
September 2017 to determine whether the board reviewed and approved the credit card
statements. We reviewed 100 percent of the 15 statements to determine whether the board
approved the statement before the executive director made the payment. We reviewed 100
percent of Ragland’s credit card purchases from July 1, 2012, 18 to September 30, 2017, totaling
more than $16,000. We also reviewed the checks issued to tenants during the audit period;
obtained and reviewed supporting documentation, such as timesheets, checks, bank statements,
and tenant files; and compared the tenants paid to the payroll report and employee listing.

Finding 1
We reviewed financial records and supporting documentation for Pell City from October 1,
2012, to September 30, 2017, and for Ragland from July 1, 2012, to September 30, 2017. We


16
     Pell City’s board of commissioners performed its first review on October 6, 2015, for the purchases reported on
     the August 2015 to October 2015 credit card statements.
17
     Pell City implemented its credit card use policy on September 21, 2015.
18
     Ragland did not begin using the credit card for purchases until September 2013.
                                                          13
reviewed the expenditures to determine whether program disbursements were (1) supported, (2)
properly approved, (3) accurately reflected in the Authorities’ financial records, (4) allowable,
and (5) made from the proper accounts with eligible program funds. For Pell City, we selected a
statistical sample of 120 expenditures, and reviewed a statistical sample of 20 expenditures
totaling more than $97,000 from a universe of 2,539 expenditures totaling more than $2.3
million for the period October 1, 2013, through September 30, 2017. We selected a statistical
sample of 120 expenditures for Ragland and reviewed a sample of 20 expenditures that totaled
more than $214,000 from a universe of 1,827 expenditures totaling more than $2.1 million for
the period July 1, 2012, through September 30, 2017. After reviewing the sample 20
expenditures for Pell City and Ragland, we determined that the observed deficiencies did not rise
to the level needed to justify reviewing the complete sample of 120 expenditures, respectively.
Finding 3
We reviewed the Pell City and Ragland waiting lists, dated August 16, 2017, and compared them
to the tenant listing as of January 2, 2018. For Pell City, we determined that seven applicants
were housed between August 16, 2017, and January 2, 2018. Additionally, we determined that
only three of the seven tenants were on Pell City’s waiting list as of August 16, 2017. Therefore,
we determined that Pell City housed four applicants that were not on its waiting list.
We determined that Ragland housed two applicants between August 16, 2017, and January 2,
2018. We determined that both applicants were on the waiting list as of August 16, 2017.
The results of findings 1, 2 and 3 for the audit apply only to items selected for review and cannot
be projected to the universe or population.
Other Information
To achieve our audit objective, we relied in part on computer-processed data contained in the
accounting system of the current and former fee accounting firms for both Authorities to achieve
our audit objective. Although we did not perform detailed assessments of the reliability of the
data, we performed minimal levels of testing and found the data to be adequately reliable for our
purposes. The tests for reliability included but were not limited to comparing computer-
processed data to vendor payments, financial records, and other supporting documentation.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                14
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

•   effectiveness and efficiency of operations,
•   reliability of financial reporting, and
•   compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.

Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

•   Effectiveness and efficiency of operations – Policies and procedures that management has
    implemented to reasonably ensure that a program meets its objectives.
•   Compliance with laws and regulations – Policies and procedures that management has
    implemented to reasonably ensure that program implementation is in accordance with laws,
    regulations, and provisions of contracts or grant agreements.

We assessed the relevant controls identified above.

A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.

Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

    •   Pell City did not administer its and Ragland’s program operations in accordance with
        requirements. Specifically, it did not (1) ensure that program disbursements were
        appropriate and supported, (2) comply with conflict-of-interest requirements, and (3)
        administer its waiting list in accordance with regulations (findings 1, 2, and 3).




                                                  15
Appendixes

Appendix A
                              Schedule of Questioned Costs
                Recommendation
                                      Unsupported 1/         Ineligible 2/
                    number
                        1A                                      $1,188
                        1B                $12,874
                        1F                                        $105
                        1G                $31,580
                      Total                 44,454              $1,293

1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.
2/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.




                                             16
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments



              Pell City Housing Authority
              Patricia Lynne Smith                                         Office of Inspector General
              Executive Director                                           75 Ted Turner Drive SW,
              Room 330
                                                                           Atlanta, Georgia 30303
              P.O. Box 681 Pell City, Alabama 35125                        404-331-3369
              205-338-7012
              pellcityhousing@yahoo.com


              June 25, 2018

              Dear Office of Inspector General,

                Pell City Housing Authority (“PCHA”) and Ragland Housing
                Authority (“RHA”) joint response to the U.S. Department of
               Housing and Urban Development’s (“HUD”), Office of Inspector
               General (“OIG”) May 31, 2018 draft audit report and request for
                                    written comments

              General:

Comment 1             In its draft, OIG cites what is believed to be OMB Circulars and
              Guidance Part 225 as establishing “the basic guidelines, principles, and
              standards, for allowable costs” and that “it states that allowable costs
              must be adequately documented, necessary, and reasonable for the proper
              and efficient performance and administration for Federal awards.”1
              PCHA and RHA will use the OMB Circulars and Guidance Part 225 as the
              governing authority in its response.

              ______________________
              1 Reference was also made to “regulations at 24 CFR 85.20(b)(5) and 85.20(b)(6)” to “provide

Comment 1     guidance on the requirements that must be followed in determining the reasonableness,
              allowability, and allocability of costs and state that account records must be supported. To the
              best of our knowledge, 24 CFR 85.20(b)(5) and 85.20(b)(6) were removed
              December 19, 2014 by 79 FR 75871. (See Exhibit K)If a separate regulation superseded this
              regulation, the PCHA and RHA would request that HUD disclose the regulation and allow each
              housing authority the appropriate time to respond.




                                         17
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
              PCHA’s Response to OIG’s Finding 1: The Pell City Housing
              Authority Did Not Administer Its and Ragland’s Financial
              Operations in Accordance with HUD Regulations

              I. Pell City Credit Card Expenditures Were Not Allowable

                       “Pell City paid more than $1,100 for unallowable expenditures and
              more than $4,700 in costs that lacked documentation. Credit card
              payments were made for unallowable expenditures, such as late fees, gift
              cards, alcoholic beverages, and gas purchased by the maintenance director
              while on vacation. Pell City also purchased miscellaneous items, such as
              food and supplies, which lack an itemized receipt.”

              Unallowable Charges (Pell City):

Comment 2             It is PCHA’s understanding that the items listed in Exhibit A of
              PCHA’s response are the items OIG has determined as unallowable credit
              card purchases. PCHA would note that none of the expenditures listed on
              Exhibit A were used to purchase alcoholic beverages.

Comment 3             It is the position of the PCHA that the expenditure noted as
              3/28/2014, $60.00 is an allowable cost under Appendix B to Part 225
              section 42 and 43, which state as follows:

                      “42. Training Costs. The cost of training provided for employee
                      development is allowable.” And “43. Travel Costs. a. General.
                      Travel costs are the expenses for transportation, lodging,
                      subsistence, and related items incurred by employees who are in
                      travel status on official business of the governmental unit.”

              On the day of March 28, 2014, PCHA and RHA’s executive director
              traveled to Orange Beach, Alabama to attend the Alabama Public Housing
              Area Directors Association (“APHADA”) conference. (Exhibit B) The
              APHADA is a professional conference held annually to educate Executive
              Directors on changes in policy and regulations. PCHA/RHA’s Executive
              Director’s husband, who is also the Maintenance Supervisor, accompanied
              his wife on the trip. The Executive Director’s personal vehicle was in the
              shop at the time and the Board approved the use of a Housing Authority
              vehicle to travel to the conference. The purchase of gas on the above
              referenced date was for travel to and from the conference. PCHA/RHA
              believes this cost is allowable under the above regulations.




                                   18
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
                      In addition, section 27 states as follows:

                      27. Meetings and conferences. Costs of meetings and conferences,
                      the primary purpose of which is the dissemination of technical
                      information, are allowable. This includes costs of meals,
                      transportation, rental of facilities, speakers’ fees, and other items
                      incidental to such meetings or conferences.

Comment 3     The following items were bought in association with the conduction of the
              Alabama Association of Housing and Redevelopment Authority’s
              (“AAHRA”) annual conference: 8/19/2013 $40.70; 8/23/2013 $14.83;
              8/24/2013 $54.72; $24.14. These charges were all reimbursed by the
              AAHRA and deposited into PCHA funds to pay for the above mentioned
              credit card charges. Itemized receipts were provided and can still be
              provided by PCHA. In addition, PCHA has attached the corresponding
              credit card statement, proof of attendance at conference, the email to
              AAHRA regarding reimbursement and the deposit slip for the
              reimbursement from AAHRA. (Exhibit C) PCHA believes these charges are
              allowable under the above referenced provisions.

              In addition, charges made on 10/24/2012 for $42.00, and on 12/10/2012
Comment 3     for $41.53 were food bought for Board Meetings. Under the above
              referenced Section 27, the PCHA believes these are allowable charges.

                       Section 13 of part 225 states the following “13. Employee morale,
              health, and welfare costs. a. The costs of employee information
              publications, health or first-aid clinics and/or infirmaries, recreational
              activities, employee counseling services, and any other expense incurred in
              accordance with the governmental unit’s established practice or custom
              for the improvement of working conditions, employer-employee relations,
              employee morale, and employee performance are allowable.

                      The following charges were placed to purchase flowers as acts of
              condolences to bereaving employees: 10/24/2012 $150.99; 1/5/2013
              $101.20;9/18/2013 $70.00”. The purchases were made for two employees
              and one Commissioner. The PCHA believes that the act of kindness on
              behalf of the PCHA to the employees improved “working conditions,
              employer-employee relations, employee morale, and employee
              performance” which are allowable under the above referenced guidelines.




                                    19
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
                      OMB Circulars and Guidance Part 225 also states:
Comment 3             “Sections 1 through 43 provide principles to be applied in
                      establishing the allowability or unallowability of certain items of
                      cost. … Failure to mention a particular item of cost in these
                      sections is not intended to imply that it is either allowable or
                      unallowable; rather, determination of allowability in each case
                      should be based on the treatment or standards provided for
                      similar or related items of cost.”

              PCHA believes that the gift cards purchased on 8/21/2013, 8/7/2015, and
              8/21/2016 for the AARHA conference should be allowable. By comparison
              to a “similar or related items of cost”, section 27. Meetings and conferences
              states:

                       “Costs of meetings and conferences, the primary purpose of which
                      is the dissemination of technical information, are allowable. This
                      includes costs of meals, transportation, rental of facilities,
                      speakers’ fees, and other items incidental to such meetings or
                      conferences.”

              The purchases of the three (3) gift cards were done so as a donation to the
              AARHA Education Scholarship Fund. The gift cards were donated at the
              AARHA convention which the Executive Director attended and was under
              guidelines in section 27. Given that the “allowable” items of cost are not an
              exhausted list, PCHA believes that the gift cards should be allowed.

                       In addition, the OMB Circulars and Guidance Pt. 225, App A. gives
              additional guidance. Its states reasonable costs as “Reasonable costs. A
              cost is reasonable if, in its nature and amount, it does not exceed that
              which would be incurred by a prudent person under the circumstances
              prevailing at the time the decision was made to incur the cost.” PCHA’s
              Executive Director was present, at a convention, where all attendees are
              involved in the overseeing of Housing Authorities. All members of the
              convention were asked to donate a door prize so that money could be
              raised for an education scholarship. It is prudent that the Executive
              Director, based on the circumstances prevailing at the time the decision
              was made, would have believed that the cost associated with the donation
              would be allowable and reasonable according to the definitions under the
              OMB Circulars and Guidance Part 225.




                                    20
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
                       Lastly, OIG cited a charge on 8/19/2013 for $8.94. PCHA does not
              find a charge for that amount on that date on its statement and would ask
Comment 4     that it be removed from OIG’s report.

                  II.     Ragland’s Credit Card Expenditures Were Not Allowable

                  Unallowable charges (Ragland)

Comment 5         “Ragland paid $105 for unallowable credit card purchases, such as
              gas and gifts...” OIG listed two purchases for RHA that were determined
              to be unallowable. RHA believes both purchases are allowable under OMB
              guidelines. 1 Those purchases are listed in a spreadsheet marked as
              Exhibit D.

                   On 1/28/2015, RHA made a purchase for $68.20. The purchase was
              for food/ condolences for a RHA Commissioner whose husband
              unexpectedly passed away. Under section 13 of the OMB Circulars and
              Guidance, Part 225, App. B states “Employee morale, health, and welfare
              costs. a. The costs of employee information publications, health or first aid
              clinics and/or infirmaries, recreational activities, employee counseling
              services, and any other expenses incurred in accordance with the
              governmental unit’s established practice or custom for the improvement of
              working conditions, employer-employee relations, employee morale, and
              employee performance are allowable.” RHA believes that this section
              allows for the types of purchases noted above.

                   OIG also noted a 2/12/2015 purchase of $36.90. Section 26 states “26.
              Materials and supplies costs. a. Cost incurred for materials, supplies, and
              fabricated parts necessary to carry out a Federal award are allowable.”
              In addition, Section 43 states “Travel costs. a. General. Travel costs are
              the expenses for transportation, lodging, subsistence, and related items
              incurred by employees who are in travel status on official business of the
              governmental unit.” The 2/12/2015 purchase was a charge for gas in a
              RHA work truck. The Town of Ragland, where RHA is located, only has
              one gas station. That particular gas station ran out of gas on the day in
              question. The employee was unauthorized to use the RHA credit card so
              an authorized user traveled with the employee to the closest gas station to
              purchase gas. Later, the employee was authorized to use the credit card
              for future issues. (See Exhibit E) Under sections 26 and 43, the purchase
              should be allowable.




                                    21
             Auditee Comments and OIG’s Evaluation




Ref to OIG        Auditee Comments
Evaluation
                    III.      PCHA and RHA Credit Card Expenditures and Disbursements
                              Were Not Adequately Supported
Comment 1
                   PCHA believes that the attached Exhibit F is a spreadsheet identifying
              all purchases indicated as not adequately supported by OIG in its audit
              draft. According to Part 225.20 “Policy. This part establishes principles
              and standards to provide a uniform approach for determining costs and to
              promote effective program delivery, efficiency, and better relationships
              between governmental units and the Federal Government. The principles
              are for determining allowable costs only.” It is PCHA’s understanding that
              all charges listed in Exhibit F and RHA’s Exhibits G and H have been
              deemed to be allowable costs just not adequately supported. Therefore,
              PCHA and RHA will not reference Part 225 in its response as Part 225 is
              not relevant to the findings.

                  In its draft, OIG references Part 225 as establishing “the basic
              guidelines, principles, and standards, for allowable costs” and that “it
              states that allowable costs must be adequately documented, necessary,
              and reasonable for the proper and efficient performance and
              administration for Federal awards.”1 PCHA and RHA find no such
              language in Part 225. Part 225, App. A, C. Basic Guidelines states:

                           “1. Factors affecting allowability of costs. To be allowable under
                           Federal awards, costs must meet the following general criteria: a.
                           Be necessary and reasonable for proper and efficient performance
                           and administration of Federal awards.”

              Part 225 makes no reference to the documentation of purchases and only
              makes reference to the allowability of purchases. The purchases have to be
              necessary and reasonable. No standard is listed for the level of
              documentation. The guideline implies that the documentation must be
              sufficient for it to be determined whether the purchases are reasonable and
              therefore, allowable. As all items in Ex F, G, and H are allowable, it is each
              housing authorities’ position that the documentation is sufficient.

              ______________________
              2Reference was also made to “regulations at 24 CFR 85.20(b)(5) and 85.20(b)(6)” to “provide
Comment 1     guidance on the requirements that must be followed in determining the reasonableness,
              allowability, and allocability of costs and state that account records must be supported. To the
              best of our knowledge, 24 CFR 85.20(b)(5) and 85.20(b)(6) were removed
              December 19, 2014 by 79 FR 75871. (See Exhibit K)If a separate regulation superseded this
              regulation, the PCHA and RHA would request that HUD disclose the regulation and allow each
              housing authority the appropriate time to respond.




                                         22
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
                      PCHA and RHA would further note that 24 CFR Part 85 is believed
              to have been removed in December 19, 2014 and therefore, no longer a
Comment 1     standard by which should not be used to determine whether a credit
              card/disbursement is adequately supported. (See Exhibit K)

                      If 24 CFR Part 85 was authoritative, 85.20(b)(6) would state the
              following:

                      (6) Source Documentation. Accounting records must be supported
              by such source documentation as cancelled checks, paid bills, payrolls,
              time and attendance records, contract and subgrant award documents,
              etc.”

              PCHA and RHA believe its documentation meets this definition.
Comment 6     Not Adequately Supported (Pell City and Ragland)

                     Attached Exhibits F and G list all purchases found by OIG to be
              inadequately supported by PCHA and RHA.

              PCHA and RHA have already provided all receipts, invoices, and
              documentations supporting each purchase as listed in Exhibit F and G. It
              is PCHA and RHA’s position that the documentation already presented
              was found sufficient for OIG to make a determination that each of the
              items was an allowable cost. As such, the documentation, by definition, is
              sufficient documentation. It allows the regulatory entity sufficient proof
              that the item is deemed allowable and acceptable under the corresponding
              federal regulations. There is nothing in the now removed 24 CFR Part 85
              that requires PCHA and RHA to have any more detailed documentation
              than what has already been presented. The information that is being
              asserted by OIG as being “reasonable and necessary” many times requires
              for the PCHA and RHA to request independent third parties to provide
              documentation and receipts that they would not otherwise provide to
              customers, or which, many times, they are unable to manufacture. (See
              Exhibit I for the Ragland Post Office). The cited regulations are meant to
              help provide guidance to federal departments, not penalize them with
              unrealistic and unattainable goals.




                                   23
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
              In addition to the documentation previously given, RHA is also attaching
              Exhibit J, additional proof that the purchase on 7/24/2017 for $325.00
              was a registration fee for the annual AAHRA conference. PCHA and RHA
              believe that the documents attached in Exhibits J are sufficient for
              adequately documentation.
Comment 7     Disbursements/ Credit Card Purchases Not Supported by Adequate
              Documentation (Ragland)

                      OIG listed three disbursements and nine purchases that were
              determined to not be support by adequate documentation for RHA. Those
              disbursements and purchases are listed in a spreadsheet marked as
              Exhibit H.

                      The 3/5/2014, Check 2020 was for items needed to maintain the
              sewer plant that is owned and maintained by RHA, and for items (wax
              stripper) used in the maintenance of the units. As support of its
              disbursement, RHA has attached the following as Exhibit L: a copy of the
              check; a detailed order form from the company, signed by a maintenance
              worker with RHA; an invoice from the company for the same amount as
              the check; and three (3) detailed work orders, also signed by the same
              maintenance worker, stating what materials where used and also detailed
              remarks in which the material bought from the company is listed.

              The Check 2599 dated 9/24/2015 is for work done at RHA to remove trees.
              The funds for this work were obtained through a grant approved by the
              HUD (Exhibit M). RHA is attaching the grant application detailing the
              work requested and the letter of approval.

                      Lastly, check 3106 dated 2/7/2017 was to replace the DVR and
              security cameras that had ceased to work due to being struck by lightning.
              RHA is attaching the following documentation: (1) a copy of the canceled
              check, and (2) a detailed invoice for the same amount. PCHA has also
              attached a “lightning affidavit” from a representative of the company
              attesting to the need to replace the system. (Exhibit N)

                      RHA does not find any remarks in any of the references cited by
              OIG that require any additional or more detailed documentation. As such,
              it is RHA’s position that this disbursement is adequately supported.




                                   24
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
                  IV.     Credit card policy and Check Signing Authorization Policy
Comment 8         To the best of RHA and PCHA’s knowledge, it is not mandated that
              housing authorities have credit card policies. Pell City did adopt a credit
              card policy in 2015. The policy did say that it had to be signed off by the
              Director and a Commissioner five (5) days prior to the time due. A revised
              credit card policy is now in place, as of May 16, 2018 (see Exhibit O). As to
              RHA, a credit card policy, the same as the revised version of PCHA, was
              approved on May 8, 2018 (see Exhibit P). In addition, on that same day,
              RHA revised its check signing authorization policy to require any two
              signatures of persons listed on the bank authorization card. (See Exhibit
              Q). This policy is now the same as PCHA.

                  V.      Hired Laborers Were Improperly Paid for Work at Pell City
                          and Ragland

                  OIG cites both PCHA and RHA for not providing adequate
              documentation to support payment for work performed by
              hired laborers. Attached in Exhibit R are the list of hired laborers for both
              PCHA and RHA.

Comment 9          OIG lists Worker 3 ($60) as a laborer that was hired by PCHA. As
              stated in previous conversations with OIG, Worker 3 was never a hired
              laborer. The $60 check issued to Worker 3 was a security deposit
              refund. PCHA has previously provided documentation (including a copy
              of the check issued to Worker 3 with the designation “ security deposit
              refund” noted; the “ Pell City Housing Authority Notice of Intent to Vacate”
              signed by Worker 3 and noted on the form the information," amount
              refunded $60.00”) establishing that the check in question was issued as a
              refund. Not only is there no additional documentation to give OIG but
              there are no “detail service provided by the workers, location of the work
              performed”. PCHA is providing its documentation again as Exhibit S to
              this response and requesting that Worker 3’s name and corresponding
              payment be deleted from the list improperly paid hired workers.




                                    25
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
                   As to the other “hired laborers”, OIG specifically states that “the
              documentation provided failed to adequately support in detail the services
Comment 10    provided by the workers, the location of the work performed, or the
              justification for payment.” PCHA and RHA find no requirement in Part
              225 that requires the type of documentation as listed by OIG. PCHA and
              RHA have provided the following documentation in Exhibits T - AA, and
              believe that it is sufficient to properly support the payment of each
              worker.

              Worker 1

              Worker 1 was issued the following checks: check 12932 on 04/28/2016 for
              $640.00; check 12949 on 05/12/2016 for $535.00; and check 12957 on
              06/13/2016 for $225.00 for a total of $1,400.00. As with all hired
              laborers, PCHA provided to OIG: (1) copies of each check issued, with the
              location of the work performed and a description of the work done (each
              check states “helping with grass and vacant unit”); and (2) a copy of the
              hours performed each day by the workers. (See Ex. T) All criteria quoted
              by OIG were sufficiently and adequately documented and as such, should
              not be deemed “inadequately supported.”

              Worker 2

                       Worker 2 was issued the following checks for PCHA: check 12989
              on 07/12/2016 for $230.00 and check 13069 on 08/30/2016 for $295.00
              for a total of $525.00. For documentation, PCHA provided the following:
              (1) copies of each check issued, with notation of location (206 31st St
              North,720 14Th St So.) and a description of work done (helping with vacant
              units).(See Ex. U)

                      RHA issued a total of $10,767.50 in checks (See Exhibit F for a
              complete listing). As documentation, RHA provided the following: (1) a
              copy of the check issued, complete with location (720 14th Street South) and
              description (helping with vacant units) (2) a copy of the daily hours
              worked and (3) the work orders that correspond with the work performed.
              As with all of hired laborers, both the PCHA and the RHA has provided
              enough documentation for the payments issued to be deemed adequately
              supported. (see Exhibit U).




                                   26
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
              Worker 4
Comment 10             Worker4 was issued the following checks by PCHA: check 13237 on
              date 02/24/2017 for $460.00; and check 13254 on 03/08/2017 for
              $150.00 for a total of $610.00. As documentation, the PCHA has provided
              (1) a copy of the corresponding check, with location specified (3105 1st
              Avenue North, 3104 2nd Avenue North, 3105 3rd Avenue North, 3105 1st
              Avenue North, 109 31st St North, 3101 2nd Ave. No.) and a description
              (helping with vacant units) and (2) a copy of the daily hours worked (See
              Exhibit V). PCHA believes the documentation provided is sufficient to meet
              the OIG required criteria and be found to be adequately sufficient
              documentation.

              Worker 5

                       Worker 5 was issued the following checks by PCHA: Check 13135
              dated 11/09/2016 for $350.00, Check 13139 on 11/10/2016 for $225.00,
              check 13147 dated 11/29/2016 for $400.00, check 13166 on 12/14/2016 for
              $650.00, and check 13179 for 12/27/2016 for $640.00 for a total of
              $2,265.00. As supporting documentation, PCHA provided copy of check,
              with dates, value, description and location (i.e. “helping with vacant
              units; cleaning 4430; 3202 1st avenue North; 3112 3rd Avenue
              North”). PCHA also provided payroll forms that show detailed
              hours. Every copy of every check provided to OIG for Worker 5 designates
              the location the services were provided and the services provided by the
              worker. The justification for payment should be evident by the notation
              that she did the work. (See Exhibit W)

                      Worker 5 was also issued the following checks by RHA: Check
              3062 on 01/05/2017 for $80.00; check 2778 on 04/07/16 for $410.00;
              check 2796 on 04/27/2016 for $435.00; check 2872 on 07/12/16 for
              $580.00; check 2900 on 07/29/16 for $960.00; check 2919 on 08/08/16
              for $320.00; check 2925 on 08/30/2016 for $1,140.00; check 2950 on
              09/12/2016 for $360.00; check 2963 on 09/29/2016 for $870.00; check
              2980 on 10/06/2016 for $360.00; check 2989 on 10/27/16 for $720.00
              and check 3022 on 11/09/2016 for $240.00 for a total of $6,475.00.




                                   27
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
                      For each payment, RHA has provided the following: (1) a copy of
              each check issued; (2) a copy of the payroll hours of the worker for each
Comment 10    day (often times with the location where the work was performed), and (3)
              a corresponding work order that lists the location, the material used,
              signed by the hired laborers and often with remarks regarding the specific
              work done. (See Exhibit X). This documentation meets the criteria set out
              by OIG in its written draft and is sufficient to meet the adequately
              supported threshold instituted by OIG.

              Worker 6

                      Worker 6 was issued by PCHA a total amount of payments
              equaling $3,365.00. As documentation, PCHA provided the following: (1)
              copies of each check issued, with a location (each check has multiple
              locations listed) and description (some checks have multiple description-
              helping with vacant units, cutting grass, preparing for UPCS Inspections,
              performing repairs from inspection), (2) the corresponding daily hours
              worked, and (3) the work orders that correspond with the work
              performed. In addition, PCHA has provided the work orders related to
              and a copy of the UPCS Inspection with corresponding dates. (See Ex. Y)

              Worker 7

                       Worker 7 was issued a total of $845.00 in checks as payment for
              work done. As proof of documentation, the RHA provided to OIG the
              following: (1) copies of the checks issued, with description of the work done
              (“worked on the grounds preparing for Inspection” and “helping with
              apartments”) (2) copy of the daily hours worked and (3) the work orders
              that correspond with the work performed. RHA also provided a copy of
              its corresponding check registry which listed additional details
              (“07/31/2013, check 1840 Worker 7, Contract labor with ______”,
              Ragland Maintenance worker). RHA believes this is sufficient
              documentation to be deemed adequately supported. (See Ex. Z)




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Ref to OIG    Auditee Comments
Evaluation
              Worker 8
Comment 10             Worker 8 received the following payments from RHA: check 3137
              on 03/10/2017 for $115.00 and check 3157 for 03/23/2017 for $150.00 (See
              exhibit Y). As documentation, RHA provided the following: (1) copies of
              the checks issued, with a description of work provided (helping with
              vacant units), and (2) a copy of the daily hours worked by the hired
              laborer and (3) the work orders that correspond with the work performed.
              RHA believes this is sufficient documentation to be deemed adequately
              supported.

              Worker 9

                      Worker 9 was issued one check for $20.00. As documentation in
              support of the payment, RHA provided (1) a copy of the check issued,
              complete with description (“helping Jack”), and the daily hours worked,
              which notes the location (708 Brannons Circle, Ragland, Alabama) but
              also a description (Picked up trash). There was only one check issued and
              one hours worked form. (See Ex. AA) The correlation between the two is
              not only obvious but also provides sufficient documentation to determine
              the location, date, job performed, and why the worker should be paid.
              RHA believes this is sufficient documentation to be deemed adequately
              supported.

                       In regard to Board training, PCHA and RHA Commissioners have
Comment 11    attended all training that could be afforded by the Housing Authorities.
              PCHA has one certified Commissioner and four (4) that will be attending
              certification classes at the convention this year. RHA has one
              commissioner that has attended training and plans on being certified in
              the near future. Both PCHA and RHA will provide documentation of such
              at OIG’s request.




                                   29
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
              PCHA’s Response to OIG’s Finding 2: The Pell City Housing
              Authority Did Not Comply With Conflict of Interest
              Requirements

                    I.    There Was an Apparent Conflict of Interest

Comment 12             In order to appropriately address OIG’s Conflict of Interest
              assertion, it should first be noted that OIG has repeatedly failed to
              correctly identify and report the PCHA’s Executive Director’s employment
              date. The current PCHA Executive Director was hired as tenant
              coordinator July 5, 1994. She was promoted to PCHA Executive Director
              May 1, 1998 and was asked by Birmingham HUD to be director over
              RHA on May 30, 2012. (See Exhibit BB) The current Executive Director’s
              date of employment has never been March 2009 (as reported in OIG’s
              draft). OIG was told during phone conversations with the Executive
              Director that the employment date was incorrect and OIG has failed to
              correct the date.

                       The current Executive Director’s husband works as the
Comment 13    Maintenance Supervisor and was hired on April 22, 1991. He was
              married to the current Executive Director at the time of his employment.
              He was also married to the current Executive Director at the time she was
              made Executive Director over PCHA and again, as RHA. At the time that
              both employees were originally hired, the Personnel Policy adopted by the
              Pell City Housing Authority (see attached exhibit CC) stated that nepotism
              was to be avoided if possible, but did not prohibit the hiring of two
              individuals from the same family.

                      In 1998, when the current Executive Director was hired for her
              current role, the annual contribution contract made no requirement that a
              waiver be obtained. (Ex. DD) It is PCHA’s position that to date, a different
              contract has never been executed by PCHA.




                                    30
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
                       In addition, on March 3, 2009, the Pell City Housing Authority’s
              Minutes note (Ex. EE) the following: “Commissioner _______ asked the
Comment 13    board to turn to page 29 and look under employment of relatives, he stated
              that he would like to have an amendment added to this section that would
              read as follows: If a legally hired employee(s) was/were hired and
              approved by Pell City Housing Authority board of Commissioners prior to
              the adoption of this amendment such employee(s) shall be retained by
              reason of tenure and conditions- Grandfathered In. The aforementioned
              previously hired employee(s) will adhere to all requirements, standards,
              and duties of the Pell City Housing Authority state and federal
              guidelines/laws with the exception of the Nepotism Clause thereby
              nullified in the singular cause. Commissioner _____ than called for a
              motion to accept the Amendment to the Nepotism Clause, a motion was
              made by Commissioner _________ this motion was seconded by
              Commissioner _______ and was unanimously approved.” (See attached
              Exhibit EE).

                       Furthermore, on April 24, 2007, the PCHA Board notes a reference
              to a Board meeting that took place at the hiring of the current Executive
              Director. (See Exhibit FF) “Mrs. ______ was officially hired by the Board
              on Tuesday April 14, 1998. Some questions that were raised at the meeting
              included: Could _______ work for his wife? After discussion, everyone
              felt they did not anticipate any problems.” The minutes continue by
              stating, “Ms. ______ stated that these are the minutes that tell how
              _______ (Executive Director) and _______ both came to work at the
              Pell City Housing Authority. She asked if it was wrong or right and noted
              that this is not the only situation in Public Housing in Alabama where a
              husband and wife work together or some other relatives are employed.
              She informed the board that there are other Housing Authorities in this
              area where family members are hired. Neither of them hired the other
              they came thru here at the nomination and the seconding of Housing
              Commissioners just like the current board. Co-Chairman _________
              stated that she wanted to provide a background so that everyone could
              understand why and how _______ (Executive Director) and ________
              came to work at the Authority together. Ms. ________ then opened the
              floor for any questions that they might have.




                                   31
             Auditee Comments and OIG’s Evaluation




Ref to OIG        Auditee Comments
Evaluation
              Commissioner ________ stated that he would like to know what other
              Housing Authorities have families working together around here.
Comment 13    __________ stated that she could check and get a list together. Co-
              Chairman _____ stated that we do have other Directors from other
              housing authorities at the meeting, and also present at the meeting
              was                 “ (the former HUD Director of Public and Indian
              Housing, Birmingham Office), “who had previously served at HUD. Ms.
              _______ asked Mr. _______” (the former HUD Director of Public and
              Indian Housing, Birmingham Office) “if he could elaborate on this
              discussion.” The former HUD Director of Public and Indian Housing,
              Birmingham Office “stated that there are several Housing Authorities
              around the State that have relatives working for them. He named
              Daleville, where a mother and daughter work together and Valley
              Housing where a husband and wife work together. Commissioner
              __________ asked in what capacity they work together and Mr.
              ______” (the former HUD Director of Public and Indian Housing,
              Birmingham Office) “stated that in Valley the wife is the Executive Director
              and the husband is the Maintenance Director just like it is in Pell City. …
              Commissioner ______ asked if that made it right. He stated that you
              have to make an evaluation of what is right, and that the policies and By-
              Laws established what is right and what is wrong. Commissioner
              ________ asked Mr. _________” (the former HUD Director of
              Public and Indian Housing, Birmingham Office) “if he approved
              of nepotism in the sense that it is at this Housing Authority. The
              former HUD Director of Public and Indian Housing,
              Birmingham Office “responded by saying he would approve it,
              and did approve it, while in his position as Director of Public
              Housing in Birmingham, Alabama and for the State of
              Alabama.” 1

                      Based on the above minutes, it is apparent that the Board of
              Commissioners knew of the relationship between the Executive Director
              and the Maintenance Supervisor, sought out guidance regarding the
              relationship, and ultimately, approved of both working for the authority.
              PCHA believes that these minutes are a sufficient waiver.

              _________________
              3“_____” were inserted and names deleted to protect individual’s privacy. A complete copy of
              the minutes has been attached as Exhibit EE.




                                        32
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
              PCHA would also note that they have never been told of any official form
              for a waiver or a requirement of such. PCHA would and has provided the
Comment 13    minutes from the April 24, 2007 meeting as a waiver of any conflicts of
              interest.

                      In addition, PCHA would note that the Director of HUD
              Birmingham referenced in the minutes was Director from 1993-2003.
              Based on the above minutes, it is very clear that not only did Birmingham
              HUD know of the relationship but that as Director of HUD, he approved of
              the current Executive director and her husband working for the same
              Housing Authority. The referenced HUD Director ratified that opinion
              again in these 2007 minutes. PCHA believes this is sufficient to establish
              that HUD Birmingham also waived the conflict of interest.

                        Lastly, PCHA would also note that when the current Executive
              Director became Executive Director of Ragland Housing Authority in
              2012, it was at the request of Birmingham HUD. There were multiple
              meetings and phone calls with Birmingham HUD. Present at most, if not
              all, of the meetings was the Divisions Director, HUD Office Birmingham.
              At no point in any meeting was the Executive Director asked to provide a
              waiver regarding the employment of her husband.

                      The documentation provided in the above exhibits regarding the
              alleged conflict of interest was repeatedly offered to OIG by the Executive
              Director but OIG never requested the documentation. PCHA is also
              providing a copy of its segregation of work duties. (Exhibit GG)

Comment 14    PCHA and RHA’s Response to OIG’s Finding 3: The Pell City and
              Ragland Housing Authorities Did Not Always Administer Their
              Waiting Lists In Accordance With HUD Requirements

                      I.      Pell City and Ragland Did Not Maintain Adequate Waiting
                              List Documentation

                      During their numerous and lengthy visits to PCHA and RHA, OIG
              only asked for the current waiting list and randomly selected tenant files.
              OIG did not ask to see the applicant files. Applicant files are kept by both
              PCHA and RHA to document the applicant’s process of becoming a tenant.




                                    33
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation
              OIG’s complaint seems to be that applicants further down the list were
              awarded housing before higher listed applicants. OIG’s findings are an
Comment 14    assumption on its part that PCHA and RHA did not maintain adequate
              waiting lists. Had OIG reviewed the applicant files (i.e. the applicants that
              were ‘skipped’), it would have seen that the applicants that did not receive
              housing in an orderly fashion were due to that prospective tenant’s failure
              to provide information to the Housing Authority. In other words, tenants
              that were “skipped” were due to the applicant’s own actions. Often times
              the applicant failed to provide income information or refused to complete
              the application process. Applicant files would have also shown
              correspondence and all efforts by the Housing Authority to help the tenant
              comply. PCHA and RHA cannot provide every applicant file as an exhibit
              to this response. However, PCHA and RHA are providing the waiting list
              of applicants with working notes that is kept by PCHA and RHA to make
              sure that each housing authority is compliant with ACOP. (See Exhibit
              HH)

                    OIG also never asked for historical waiting lists. If asked, both
              RHA and PCHA would have provided the requested information.

                      Conclusion

                       In conclusion, PCHA and RHA assert that OIG’s findings are not
Comment 15    accurate in many cases and misguided at best. Most of the “unallowed”
              costs identified by OIG are allowable under Part 225. In addition, Part
              225 states that it is not meant to be an exhausted list. To use it as such is
              inconsistent with the intentions of the regulations. The “inadequately
              supported” documentation given by PCHA and RHA was sufficient for OIG
              to use to determine that the costs were allowable. That alone should be
              sufficient documentation. However, even if it was not, PCHA and RHA
              have provided the documentation that OIG requested in its draft. As for
              the conflict of interest, OIG, although told many times, refuses to note the
              correct employment date for the Executive Director. In addition, the
              contract agreement that was in affect at the time of the employment of the
              Executive Director did not prohibit the employment of other family
              members and did not require a waiver. Even if such a waiver were
              required, it is evident by board minutes that not only did the Housing
              Authority’s Board of Commissioners not have an issue with the
              employment of the Executive Director and her husband but neither did
              Birmingham HUD.




                                    34
             Auditee Comments and OIG’s Evaluation




              Auditee Comments
Ref to OIG
Evaluation
              Lastly, it is the opinion of RHA and PCHA that had OIG asked for the
              appropriate documentation, it would have found that both housing
              authorities are compliant with their waiting lists and do not “skip” over
Comment 15    applicants.

                      PCHA and RHA are asking that OIG and HUD reconsider their
              findings in light of the material presented today, especially given that
              some of the findings are factually incorrect. PCHA and RHA will remain
              compliant if requests are made for additional information and look
              forward to discussing these issues.

                                                    Sincerely




                                                    Patricia Lynne Smith,
                                                    Executive Director of the
                                                    Pell City Housing Authority and
                                                    Ragland Housing Authority


              ______________________
              iAs noted previously, HUD cites 24 CFR 85.20(b)(5) and 24 CFR 85.20(b)(6). TO the best of
              our knowledge, these regulations were removed in December, 2014 by 79 FR 75871. If other
Comment 1     regulations outside of what is contained in this document were used as a standard by which
              PCHA and RHA were held to, then both Housing Authorities would request time to adequately
              review those regulations.




                                        35
                         OIG Evaluation of Auditee Comments


Comment 1   Pell City’s comments state that in its draft, OIG cites what is believed to be OMB
            Circulars and Guidance Part 225 as establishing “the basic guidelines, principles,
            and standards, for allowable costs” and that “it states that allowable costs must be
            adequately documented, necessary, and reasonable for the proper and efficient
            performance and administration for Federal awards.” Part 225 makes no
            reference to the documentation of purchases and only make reference to the
            allowability of purchases. Pell City Housing Authority and Ragland Housing
            Authority will use the OMB Circulars and Guidance Part 225 as the governing
            authority in its response. It is Pell City Housing Authority’s understanding that all
            charges listed in exhibit F, and Ragland Housing Authority exhibits G and H have
            been deemed to be allowed costs just not adequately supported. Pell City
            Housing Authority and Ragland Housing Authority would further note that 24
            CFR Part 85 is believed to have been removed in December 19, 2014, and
            therefore, no longer a standard by which should not be used to determine whether
            a credit card/disbursement is adequately supported (exhibit K).
            Part 85 and 2 CFR 200.403 applied to all Federal awards received before
            December 26, 2014. Part 2 CFR 225 governed the Authority’s Federal awards
            made after December 26, 2014. Specifically, 2 CFR 225 Appendix A, Part C
            (1)(e),(f), and (j) states that costs must be consistent with policies, regulations,
            and procedures, be afforded consistent treatment, and adequately documented.
            Our review covered HUD funds awarded to Pell City and Ragland for fiscal years
            2013 to 2017. Accordingly, we applied the appropriate criteria based on the date
            of the award to determine if the costs were proper. Pell City did not provide
            exhibits F, G, H and K with its comments.
Comment 2   Pell City’s comments state that none of the expenditures listed in exhibit A were
            used to purchase alcoholic beverages.
            Pell City did not provide exhibit A with its comments but we acknowledge that
            the draft report did not include the cost associated with the purchase of alcoholic
            beverages. However, during our review, we found that alcoholic drinks were
            purchased on August 6, 2015, for $13.99. In accordance with 2 CFR 200.423,
            alcoholic beverages are unallowable. Pell City’s executive director stated that the
            purchases were made for the Alabama Association of Housing and
            Redevelopment Activities (AAHRA) meeting and provided documentation that
            Pell City was reimbursed by the AAHRA; therefore, we did not question the cost.
            However, we determined that the alcoholic beverages were a reportable condition
            because the purchase of alcohol with Federal funds is unallowable.
Comment 3   Pell City’s comments state that that the $60.00 is an allowable training travel cost
            under Appendix B to Part 225 section 42 and 43 (exhibit B) and that the charges
            were all reimbursed by the Alabama Association of Housing and Redevelopment
            Activities (AAHRA) (exhibit C). Pell City also asserts that charges made for food
                                             36
            bought for board meetings and to purchase flowers as acts of condolences to
            bereaving employees were allowable. Lastly, Pell City believes that the gift cards
            purchased for the AAHR conference should be allowable.
            We do not agree with the statement that charges by Pell City were allowable or
            reimbursed by the AAHRA. The documentation Pell City provided during the
            audit did not satisfy the basic guideline requirements at 2 CFR 225 or 2 CFR
            200.403 (a) and (g) to determine the reasonableness, allowability, or
            reimbursement of the costs based on Federal regulations or regulations at 24 CFR
            Part 85 which requires that accounting records are maintained to adequately
            identify the source and application of funds. Pell City did not provide exhibits B
            and C with its comments. Pell City should work with HUD during the audit
            resolution process to ensure the recommendations are fully implemented.
Comment 4   Pell City’s comment states that it did not find a charge for $8.94 on its credit card
            statement and request that it be removed from the report.
            The $8.94 charge was included on the itemized receipt dated August 19, 2013,
            totaling $119.52. Based on our analysis of the purchases, Pell City was unable to
            provide records establishing the proper use of funds. Therefore, we did not make
            revisions to the report.
Comment 5   Pell City’s comments state that it disagreed with the OIG listing two purchases for
            Ragland Housing Authority that were determined to be unallowable. Pell City
            believes both purchases are allowable under OMB guidelines (exhibit D) and the
            employee was authorized to use the credit card for future issues (exhibit E) under
            sections 26 and 43, the purchase should be allowable.
            We do not agree with the statement that both purchases are allowable. The
            documentation provided during the audit did not satisfy the basic guideline
            requirements at 2 CFR 225 or 2 CFR 200.403 to determine the reasonableness or
            allowability of the costs based on Federal regulations. Pell City did not provide
            exhibits D and E with its comments. Pell City should work with HUD during the
            audit resolution process to ensure the recommendations are fully implemented.
Comment 6   Pell City’s comments state that it has already provided all receipts, invoices, and
            documentations supporting each purchase as listed in exhibits F and H. There is
            nothing in the now removed 24 CFR Part 85 that requires Pell City Housing
            Authority and Ragland Housing Authority to have any more detailed
            documentation than what has already been presented.
            We do not agree with the statement that Pell City and Ragland Housing
            Authorities have already provided all receipts, invoices, and documentations
            supporting each purchase, and that the documentation is sufficient. The
            documentation provided during the audit did not satisfy the basic guideline
            requirements at 2 CFR 225 and the regulations at 2 CFR 200.403 (a) and (g) to
            determine the reasonableness or allowability of the costs due to the lack of
                                              37
            adequate documentation, such as itemized receipts supporting the use of the
            funds. Regulations at 24 CFR Part 85 requires that accounting records are
            maintained to adequately identify the source and application of funds. Pell City
            did not provide exhibits F and H with its comments. Pell City should work with
            HUD during the audit resolution process to ensure the recommendations are fully
            implemented.
Comment 7   Pell City’s comments state that OIG listed three disbursements and nine purchases
            that were determined to not be supported by adequate documentation for Ragland
            Housing Authority exhibit H. As support for the disbursements, Ragland has
            attached supporting documentation as exhibit L. In addition, Ragland Housing
            Authority did not find any remarks in any of the references cited by OIG that
            require any additional or more detailed documentation. As such, it is Ragland
            Housing Authority’s position that this disbursements is adequately supported.
            The documentation provided during the audit did not satisfy the requirements to
            establish the proper use of funds. Pell City did not provide exhibits H and L with
            its comments to include in the report. Ragland should work with HUD during the
            audit resolution process to address the recommendations.
Comment 8   Pell City’s comments state that to the best of Ragland and Pell City’s knowledge,
            it is not mandated that housing authorities have credit card policies. Pell City
            adopted a revised credit card policy on May 16, 2018 (exhibit O), and Ragland
            adopted the same policy on May 8, 2018 (exhibit P). In addition, on that same
            day, Ragland Housing Authority revised its check signing authorization policy to
            require any two signatures of persons listed on the bank authorization card
            (exhibit Q).
            In the report, we acknowledged that Pell City Housing Authority implemented its
            credit card policy in 2015, but we also determined that Pell City did not follow its
            own policy and Ragland Housing Authority did not implement a credit card
            policy. OIG agrees that credit card policies are not mandated. However, OMB
            guidance at 2 CFR 225 makes several references to policy guidance for the proper
            application of its cost principles. Specifically, 2 CFR 225, Appendix A, Part
            C(1)(e),(f), and (j) states that costs must be consistent with policies, regulations,
            and procedures, be afforded consistent treatment, and adequately documented.
            Additionally, regulations at 2 CFR 200.403(a) and (g) state that allowable costs
            must be necessary, reasonable, and adequately documented. The lack of a credit
            card policy or the failure of its established policies and procedures to provide
            adequate documentation for costs, showed a failure to comply with OMB’s cost
            principles.
            We acknowledge Pell City and Ragland for recognizing the need to improve its
            credit card policy as recommended in the report. However, we did not review the
            revised policy because exhibits O, P, and Q were not provided with Pell City’s
            comments. Therefore, we did not determine if the revised policy addressed our
            recommendations. Pell City and Ragland should make sure the policies are
                                             38
              provided to HUD and properly implemented to clear the recommendations during
              the audit resolution process.
Comment 9     Pell City’s comments state that OIG lists Worker 3 ($60) as a laborer that was
              hired by Pell City Housing Authority. The $60 check issued to Worker 3 was a
              security deposit refund, and request that Worker 3’s name and corresponding
              payment be deleted from the list improperly paid hired workers.
              We agreed and removed the reference to the $60 paid for a security deposit refund
              from the costs in the report.
Comment 10 Pell City’s comments state that OIG specifically states that “the documentation
           provided failed to adequately support in detail the services provided by the
           workers, the location of the work performed, or the justification for payment.”
           Pell City Housing Authority and Ragland Housing Authority find no requirement
           in Part 225 that requires the type of documentation as listed by OIG. Pell City
           Housing Authority and Ragland Housing Authority have provided the
           documentation in exhibits T - AA, and believe that it is sufficient to properly
           support the payment of each worker.
              We do not agree with the statement. The documentation provided during the
              audit did not adequately support the use of the funds to satisfy the requirements to
              determine the necessity and reasonability of the workers as required by
              regulations at 2 CFR Part 225 and 2 CFR 200.403 (a). In addition, regulations at
              24 CFR 960.206(e) required that the Authority select applicants in accordance
              with the method specified in its housing plans and have a clear audit trail that
              could be used to verify its compliance with its methodology. Pell City and
              Ragland Housing Authorities should work with HUD during the audit resolution
              process to address the recommendations. Pell City did not provide exhibits T-AA
              with its comments.
Comment 11 Pell City’s comments state that in regard to Board training Pell City Housing
           Authority and Ragland Housing Authority Commissioners have attended all
           training that could be afforded by the Housing Authorities. Pell City Housing
           Authority has one certified Commissioner and four (4) that will be attending
           certification classes at the convention this year. Ragland Housing Authority has
           one commissioner that has attended training and plans on being certified in the
           near future. Both Pell City Housing Authority and Ragland Housing Authority
           will provide documentation of such at OIG’s request.
              We acknowledge Pell City and Ragland Housing Authorities for its efforts to
              ensure its board of commissioners participate in future trainings. Pell City and
              Ragland should work with HUD during the audit resolution process to ensure the
              recommendation is fully implemented.
Comment 12 Pell City’s comments state that OIG has repeatedly failed to correctly report the
           Pell City Housing Authority’s executive director’s employment date. The current
                                               39
              Pell City Housing Authority executive director was hired as tenant coordinator
              July 5, 1994. She was promoted to Pell City Housing Authority Executive
              Director May 1, 1998 and was asked by Birmingham HUD to be director over
              Ragland Housing Authority on May 30, 2012 (exhibit BB). The current executive
              director’s date of employment has never been March 2009 (as reported in OIG’s
              draft). OIG was told during phone conversations with the executive director that
              the employment date was incorrect and OIG has failed to correct the date.
              The documentation provided during the audit by Pell City did not adequately
              support the executive director’s employment date. Therefore, we relied upon the
              executive director’s employment contract as the source document for our audit
              report. We revised the report to clarify that the date shown in the report is the
              executive director’s contract date, since we did not receive adequate
              documentation to support the original employment date. Pell City did not provide
              Exhibit BB with its comments.
Comment 13 Pell City’s comments state that the current executive director’s husband works as
           the maintenance supervisor and was hired on April 22, 1991. He was married to
           the current executive director at the time of his employment. He was also married
           to the current executive director at the time she was made executive director over
           Pell City Housing Authority and again, as Ragland Housing Authority. At the
           time that both employees were originally hired, the personnel policy adopted by
           the Pell City Housing Authority (exhibit CC) stated that nepotism was to be
           avoided if possible, but did not prohibit the hiring of two individuals from the
           same family. In 1998, when the current executive director was hired for her
           current role, the annual contribution contract made no requirement that a waiver
           be obtained (exhibit DD).
              Based on the board minutes, it is apparent that the board of commissioners knew
              of the relationship between the executive director and the maintenance supervisor,
              sought out guidance regarding the relationship, and ultimately, approved of both
              working for the authority. Pell City Housing Authority believes that these
              minutes are a sufficient waiver. Pell City Housing Authority would also note that
              they have never been told of any official form for a waiver or a requirement of
              such. Pell City Housing Authority would and has provided the minutes from the
              April 24, 2007, meeting as a waiver of any conflicts of interest.
              In addition, Pell City Housing Authority would note that the director of the HUD
              Birmingham Office referenced in the minutes was director from 1993-2003.
              Based on the above minutes, it is very clear that not only did the Birmingham
              HUD Office know of the relationship but that as director of HUD, he approved of
              the current executive director and her husband working for the same Housing
              Authority. Pell City Housing Authority believes this is sufficient to establish that
              the HUD Birmingham Office also waived the conflict of interest.
              Lastly, Pell City Housing Authority would also note that when the current
              executive director became executive director of Ragland Housing Authority in
                                              40
              2012, it was at the request of the Birmingham HUD Office. There were multiple
              meetings and phone calls with the Birmingham HUD Office. Present at most, if
              not all, of the meetings was with the division’s director, HUD Office
              Birmingham. At no point in any meeting was the executive director asked to
              provide a waiver regarding the employment of her husband.
              We disagree with Pell City’s statement because Pell City’s Part A, Chapter 9 of
              the annual contribution contract with HUD prohibited the conflict-of-interest
              relationship and provided guidance for obtaining a waiver of the requirements by
              HUD or the Authority’s board of commissioners. In addition, the State of
              Alabama Code further prohibits public employees from engaging in actions or
              inaction that would materially affect their financial interest or that of their family
              members. Pell City has not provided a written document showing that HUD
              approved a waiver exempting the Authority from conflict-of-interest provisions.
              Pell City did not provide exhibits CC and DD with its comments.

Comment 14 Pell City’s comments state that OIG only asked for the current waiting list and
           randomly selected tenant files. OIG did not ask to see the applicant files.
           Applicant files are kept by both Pell City Housing Authority and Ragland
           Housing Authority to document the applicant’s process of becoming a tenant. If
           asked, both Ragland Housing Authority and Pell City Housing Authority would
           have provided the requested information.
              During our review, we requested all documentation related to the sample of
              tenants reviewed for the waiting list and interviewed the property manager at both
              Pell City and Ragland Housing Authorities. The applicant files were never
              provided to support the waiting activity. Pell City and Ragland should work with
              HUD during the audit resolution process to confirm that its policies and
              procedures are sufficient to ensure that waiting list applicants are properly
              selected.
Comment 15 Pell City’s comments assert that OIG’s findings are not accurate and request that
           OIG reconsider its findings based on the new documentation provided at the exit
           conference on June 26, 2018.
              We based the results on the documentation provided by Pell City and Ragland.
              During the audit and the documentation provided at that time did not adequately
              support the costs, the conflict of interest waiver, or the waiting list applicants.
              Pell City and Ragland should work with HUD during the audit resolution process
              to ensure the recommendations are fully implemented.




                                                41